911 F2d 738 Nerhan v. Shell Oil Company Vk 1-25

911 F.2d 738

Unpublished Disposition

NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.

Keet NERHAN, Plaintiff-Appellant,
SHELL OIL COMPANY, V.K. Clifford, Scott Johnson, and Does
1-25, Defendants-Appellees.

No. 88-2664.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 3, 1989.
Decided Aug. 10, 1990.

Before POOLE, REINHARDT and O'SCANNLAIN, Circuit Judges.

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Nerhan, a franchisee operating a gasoline service station in Half Moon Bay, California, brought this action for damages alleging that Shell interfered with his right to obtain other franchises in Redwood City and San Mateo, California. Shell prevailed at district court, and we affirm.


* In 1987, Shell brought an action in federal district court under the Petroleum Marketing Practices Act ("PMPA"), to recover possession of its service stations in Redwood City and San Mateo ("the two stations"), which at the time were being operated by franchisee Limcolioc. Shell Oil Co. v. Limcolioc, No. CV-87-2416-WWS (N.D.Cal.1987) ("the related action"). Shell had terminated the franchise agreements asserting that Limcolioc had failed to operate the two stations for more than seven consecutive days, to pay state sales taxes of more than one million dollars to the California Board of Equalization, and to maintain insurance. Limcolioc filed counterclaims alleging that Shell's termination of his franchises had been improper.


While the related action was pending, Limcolioc and Nerhan entered into two "assignments" through which Nerhan agreed to purchase Limcolioc's interest in the two stations. Shell and Limcolioc thereafter reached a tentative settlement which provided that Limcolioc would vacate the two stations by a certain date and dismiss his counterclaims. Shell agreed to review the "assignments" to Nerhan and to decide whether it would accept them based on standards set forth in Shell's Lease and Dealer Agreement and a California statute. Shell also made clear that its consideration of Nerhan did not constitute an admission that its termination of Limcolioc as franchisee of the two stations had been invalid.1 The tentative settlement provided further that Limcolioc retained the right to pursue his counterclaims for damages in the related action should Shell refuse to accept Nerhan as assignee.2


By letters dated September 1, 1987, Shell informed Limcolioc that it had reviewed the proposed assignments to Nerhan and had decided to reject them. "During his tenure as a Shell dealer [at Half Moon Bay], Mr. Nerhan has not demonstrated to Shell's satisfaction the overall performance, management ability, or commitment to Shell necessary to justify our granting him an additional franchise at this time." Letters from V.K. Clifford, District Manager, Shell Oil Company to Florante Limcolioc (Sept. 1, 1987).


In response to Shell's disapproval, Nerhan filed in California Superior Court a complaint which eventually resulted in this appeal. The complaint named as defendants Shell and two Shell employees, V.K. Clifford and Scott Johnson and set forth claims under theories of (1) breach of contract; (2) fraud; (3) interference with contractual relationship; (4) interference with prospective advantage; (5) violation of Cal.Bus. & Prof.Code Sec. 21148; (6) discrimination based on national origin in violation of Cal.Civ.Code Sec. 85; (7) discrimination based on national origin in violation of the Unruh Act, Cal.Civ.Code Sec. 51.8; (8) breach of the implied covenant of good faith and fair dealing; (9) defamation; and (10) intentional infliction of emotional distress. Complaint for damages, No. 323749, Superior Court of California, County of San Mateo (Oct. 23, 1987). Shell then removed the action to the federal district court for the Northern District of California based on its assertion that the PMPA and not state law governs termination of petroleum franchises.


The district court initially granted Shell's motion for a protective order barring any discovery until the court had ruled on Shell's expected motion for summary judgment, but preserved limited discovery rights for Nerhan in connection with opposing the motion for summary judgment. Nerhan made a discovery request through his attorney, who stated in a declaration that he had been informed that Shell already had agreed to assign the franchises for the two stations to another person at the time it agreed to consider Nerhan as assignee.

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The district court eventually denied Nerhan's discovery request and granted Shell's motion for summary judgment as to all claims while denying Shell's motion to impose sanctions against Nerhan. Nerhan timely appeals from the district court's order.



Congress enacted the PMPA to protect gas station franchisees from arbitrary or discriminatory termination of franchises. Fresher v. Shell Oil, 846 F.2d 45, 46 (9th Cir.1988) (citing S.Rep. No. 731, 95th Cong., 2d Sess. 15 (1978), reprinted in 1978 U.S.Code Cong. & Admin.News 873-74 [hereinafter S.Rep. No. 731 followed by corresponding page number in U.S.Code Cong. & Admin.News]. The PMPA seeks to provide this protection by establishing "minimum Federal standards governing the termination and nonrenewal of franchise relationships for the sale of motor fuel by the franchisor or supplier." S.Rep. No. 731 at 873. These standards specify the grounds upon which and the conditions under which a franchisor may validly terminate a franchise and require the franchisor to provide a franchisee with special notice prior to termination. Fresher, 846 F.2d at 46. The PMPA's list of reasons upon which a franchisor can justifiably rely in terminating a franchise, however, is not exhaustive. Hifai v. Shell Oil, 704 F.2d 1425, 1429 (9th Cir.1983); see S.Rep. No. 731 at 896; see also 15 U.S.C. Sec. 2802(b)(2)(C). The PMPA preempts all of Nerhan's state law claims relating to the termination of a petroleum franchise;3 those claims will be analyzed pursuant to the PMPA.4 15 U.S.C. Sec. 2806.


Federal district court jurisdiction was proper under 28 U.S.C. Sec. 1331 and we have jurisdiction under 28 U.S.C. Sec. 1291.


* The district court found that Shell had validly terminated its franchise with Limcolioc as of May 7, 1987. Thus, it reasoned, when Limcolioc transferred all of his interest in the franchises to Nerhan more than three months later, on August 21, 1987, he transferred nothing for he owned nothing.


The PMPA provides that a franchisor may terminate a franchise if the franchisee fails to comply with any provision of the franchise which is both reasonable and materially significant. 15 U.S.C. Sec. 2802(b)(2)(A). The dealer and lease agreements between Shell and Limcolioc contain provisions that mirror the PMPA standards for noncompliance. In addition, the lease agreement required Limcolioc to "timely pay all charges incident to use of the premises and business conducted thereon, including all federal, state and local taxes."


Ample evidence exists of Limcolioc's material breaches of reasonable provisions of the franchise agreements, thus giving Shell sufficient grounds upon which to terminate the agreements consistent with the conditions of the PMPA. As the district court noted, Limcolioc had amassed more than $1 million in unpaid state taxes, in clear violation of the lease agreement. He failed to carry insurance for the station after the policy he did have was cancelled for Limcolioc's failure to pay premiums. Moreover, Limcolioc did not sell gasoline at the station for a period of more than one week in 1987. Thus, the district court did not err in its finding that Shell's termination of the franchises with Limcolioc was reasonable. Nerhan cannot pursue claims arising from the purported assignments since there were no rights to assign.



Nerhan argues that he can sue to enforce his rights as a third party beneficiary under the tentative settlement agreement which included a provision by which Shell agreed to review Nerhan as a prospective assignee of the franchises for the two stations, while expressly not waiving its contention that it had already validly terminated the franchises. Supra, fn. 1.


A third party may enforce a contract at any time before the parties rescind if the contract was entered into for the express benefit of the third party. Cal.Civ.Code Sec. 1559. The third party can enforce the contract only if it appears to have been the intention of the parties to secure to the third party personally the benefit of the contract's provision. Walters v. Calderon, 25 Cal.App.3d 863, 871 (1972). The fact that a person is named in a contract is not sufficient evidence on its own of parties' intent to benefit the named third party. Id. at 870-71.


Don Rose Oil Co. v. Lindsey, 160 Cal.App.3d 752 (1984), is not to the contrary. Even where the franchisor has knowledge of an attempted assignment, intent of the parties to the contract controls a third party beneficiary's right of action. The district court found that the intention of Shell and Limcolioc in providing that Shell would review Nerhan as a prospective assignee of the franchisees "was to give Limcolioc an opportunity to recoup a part of his investment, not to benefit Nerhan." Thus, the court ruled, Nerhan does not qualify as a third party beneficiary entitled to enforce that agreement. Alternatively, the court ruled that even if Nerhan were a third party beneficiary, Shell did not breach its promise to consider Nerhan as an assignee.


The district court's ruling should not be disturbed. It properly concluded that the purpose of the settlement was not to benefit Nerhan. The district court properly granted summary judgment on the ground that Nerhan is not a third party beneficiary to the tentative settlement agreement.



Nerhan claims that statements Shell made in letters it wrote to Limcolioc explaining why it found Nerhan to be unacceptable as an assignee of the franchises for the two stations are defamatory. The district court held that Shell is absolutely immune from such a claim as any statements contained in the letters constitute publications made in a judicial proceeding.


Publications made in any judicial proceeding are privileged and entitled to absolute immunity. Cal.Civ.Code Sec. 47. Such immunity should be "liberally construed." Long v. Pinto, 126 Cal.App.3d 946, 951 (1981). It should attach if the statements have a connection or logical relation to a judicial proceeding and are made in furtherance of the litigation and to promote the interests of justice. Bradley v. Hartford Accident & Indemnity Co., 30 Cal.App.3d 818, 824 (1973).


Here, Shell wrote the letters for the express purpose of resolving its litigation with Limcolioc. Both sender and receiver were litigants acting pursuant to a proposed settlement agreement. Thus, Shell is entitled to absolute immunity as to the letters it wrote to Limcolioc regarding Nerhan's fitness as an assignee.



Nerhan sought additional time to conduct discovery for the purpose of deposing the Shell individual defendants in this case. Nerhan indirectly made such request pursuant to Rule 56(f) through declaration of his counsel, Harry Weistrop, to take the depositions of Clifford and Johnson as they were "necessary to respond to the factual issues presented by defendants' Motion for Summary Judgment." Weistrop's declaration stated that he had been informed that Shell already had agreed to assign the franchises for the two stations to another person at the time it agreed to consider Nerhan as assignee. The presence of such an alleged agreement provided the basis for a fraud claim, according to the declaration. The depositions were necessary, Nerhan urged, to bring forth evidence that Clifford and Johnson had already entered into such an agreement. The district court disallowed the request ("there is no justification for [Nerhan's] request to conduct further discovery").


Fed.R.Civ.P. 56(f) provides that the district court may order such discovery as is just if the party opposing summary judgment cannot otherwise present facts essential to its opposition.


Because Nerhan is not a third-party beneficiary and as such is not entitled to enforce the August 25, 1987 settlement agreement, any discovery relating to Shell's obligations under that agreement are irrelevant as to him. That is, even were we to assume that Shell breached any obligation it may have had to consider Nerhan under the agreement, Nerhan may not seek remedy for such a breach. In the absence of third-party beneficiary status, only the party to the contract, Limcolioc, is so eligible. Thus, the district court clearly did not abuse its discretion in denying the request for a continuance to conduct further discovery.



REINHARDT, Circuit Judge, dissenting:


I dissent. I believe that Nerhan has standing to enforce the Shell-Limcolioc settlement agreement as an assignee. The majority, like the district court below, relies on the fact that Limcolioc's franchise rights were validly terminated before he attempted to assign those rights to Nerhan. What the majority ignores, however, is that under the Shell-Limcolioc settlement agreement Limcolioc regained the right to make a valid assignment, subject only to Shell's approval. That agreement provided that, although Shell was not waiving its contention that Limcolioc's franchises had already been validly terminated, Limcolioc could assign his franchises to Nerhan, and Shell, in determining whether Nerhan was an acceptable assignee, would be bound by the standards set forth in the parties' original franchise agreement and California Business and Professional Code Sec. 21148. In my view, this settlement agreement puts Nerhan in the same position as the plaintiff in Don Rose Oil Co. v. Lindsley, 160 Cal.App.3d 752 (1984). In Rose, Shell and a franchisee had an agreement under which the franchisee could assign his rights, subject only to Shell's consent, which could not be withheld unreasonably. Shell refused to consent to an assignment to Rose, and Rose brought an action against Shell seeking to enforce the assignment provisions of the contract. The court held that, notwithstanding the fact that Rose was not a third party beneficiary of the contract between Shell and the franchisee, Rose nevertheless had standing as an assignee to enforce the contract provision regarding assignment. Rose, 160 Cal.App.3d at 759. The court concluded that a conditional assignment--subject only to the franchisor's consent--creates rights in the assignee. Id. at 759-60.


The fact that Nerhan's rights emanate from the settlement agreement rather than the original franchise agreement is, in my opinion, irrelevant. The controlling fact is that Limcolioc was authorized to assign his franchise, subject to Shell's consent, which it was required to grant or withhold in accordance with the standards set forth in the franchise agreement. As a contingent assignee, Nerhan has standing to enforce the contract provision requiring that Shell consider the assignment in good faith. Accordingly, I would reverse the district court's grant of summary judgment to Shell.


This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by Ninth Circuit Rule 36-3


The tentative settlement contains two references to Shell's reservation in this regard, as follows:


Without waiving its basic contention that Limcolioc's franchises in [the two stations] were previously terminated, Shell agrees to review the proposed assignment by Limcolioc to Keet Nerhan to determine under the standards of Shell's Lease and Dealer Agreement and California Business & Professions Code Sec. 21148 whether Keet Nerhan is an acceptable operator of [the two stations], and to advise Limcolioc as expeditiously as possible whether Shell accepts or rejects Nerhan


In the event Shell refuses to accept Keet Nerhan as the purchaser of the interests of Limcolioc in [the two stations], Limcolioc will nevertheless surrender possession as set forth in paragraph 1 of this stipulation, but in that event will not dismiss his counterclaims seeking damages, and the case will proceed to trial on the damage claims of both parties. Limcolioc will not in any such trial seek any order restoring him to possession of the premises, and Shell does not waive its right to contend in any such trial that the only real issue is whether there was a lawful prior termination by Shell of Limcolioc's franchises

Letter from David D. Ring to Peter L. Spinetta (Aug. 25, 1987) (confirming that Shell had accepted Limcolioc's stipulation concerning possession of the two stations and further progress in the related action) (emphases supplied).


Despite his right under the tentative settlement agreement to pursue counterclaims against Shell if Shell rejected the Nerhan assignment, Limcolioc eventually agreed to settle the related action and dismiss his counterclaims in a final settlement agreement of December 28, 1987. The final settlement included a stipulation that Shell's termination of Limcolioc's franchise agreements was proper and effective as of May 7, 1987


The district court concluded that nine of Nerhan's ten claims against Shell related to termination of the franchise agreement, and thus were preempted by the PMPA. Nerhan v. Shell Oil Co., No. CV-87-5887-WWS, slip op. at 8 (N.D.Cal. Apr. 12, 1988) ("All Nerhan's claims, with the possible exception of the defamation claim, are founded on and arise from the denial of the franchise.")


Nerhan challenges this ruling as applied to the claim he brings under Cal.Bus. & Prof.Code Sec. 21148(a). This statute sets forth certain conditions which must exist in order for a franchisor to reject the assignment of a franchise to a specific franchisee. Nerhan argues that because section 21148 concerns transfer or assignment of franchises, and not termination of franchises, it does not fit within the confines of the PMPA's preemption clause. Appellant's Opening Brief at 15-18. This contention is meritless